Ailing startup OnLive slashes staff, seeks more funding

August 20, 2012|Reuters

By Malathi Nayak

SAN FRANCISCO, Aug 20 (Reuters) - OnLive, once touted ashaving the potential to popularize Internet gaming and threatenconsole makers like Nintendo and Microsoft,slashed its work force by 50 percent and shifted its assets intoa newly formed company.

In an unusual restructuring effort led by Lauder Partnersover the weekend, OnLive rolled assets from technology totrademarks into a newly created company and fired half its 200employees. OnLive is backed by AT&T, Time Warner Inc and smartphone maker HTC Corp.

"OnLive, Inc's board of directors, faced with difficultfinancial decisions for OnLive, Inc, determined that the bestcourse of action was a restructuring under an 'Assignment forthe Benefit of Creditors,'" it said in a statement.

OnLive, which allows users to play video games hosted onservers, similar to on-demand movie services, was rolled out in2010 after being in development for seven years. Itsdeep-pocketed investors won it fans among industry insiders.

Silicon Valley-based venture capital group Lauder was thefirst investor in the newly formed company, which will retainthe OnLive name and keep its services operating withoutdisruption. An OnLive spokeswoman declined to provide financialdetails of the transaction.

Time Warner's Warner Bros studio, software service companyAutodesk and Maverick Capital were other earlyinvestors in OnLive, which said it has 2.5 million subscribers.AT&T and Lauder invested in a later round in 2009.

OnLive's shareholders, employees and CEO Steve Perlman didnot receive any compensation or stock in this arrangement, thecompany said. Perlman is a well-known entrepreneur who helpedlaunch WebTV, which Microsoft bought in 1997.

OnLive said that the employees let go in the restructuringwill be given offers to do consulting in return for options inthe new company.

Sales of packaged games continue to shrink as new offeringson Web-based devices like smartphones and tablets attractgamers. Some industry watchers say gamers may increasinglyswitch to cloud gaming - which lets users play on the go or onmultiple devices - from traditional consoles like the Xbox.

Sony Corp said last month that it would buy theprivately held California-based gaming firm Gaikai Inc for about$380 million, to strengthen its own online gaming services.

Taiwanese smartphone maker HTC said it bought shares worthabout $39 million in OnLive in February 2011.

"HTC estimates that it will need to recognize a $40 millionprovision for this investment loss," it said shortly afterOnLive's announcement.